Tuesday, January 1, 2013

Acid Test – Financial Ratios For UNISA Students




What is the Acid Test ratio?

(Cash + accounts receivable + short term investments) ÷ Current liabilities

What is the Acid test used for? 

It is used to indicate the ability of a business to pay its current liabilities without having to sell stock or long term investments. 

What should the Acid Test ratio of a healthy company be?
It should be at least 1. If the Acid test ratio is less than 1 it means that the business is unable to easily pay current liabilities.


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